High costs fueling about-face on energy

But re-regulation opponents warn it could have dire effect

General Assembly 2009

Maryland lawmakers are buffeted by powerful business interests and concerns about rising consumer electricity bills as they consider a plan to overhaul the power market. Sound familiar?

That was 1999, and they chose to deregulate the industry. A decade later, the same scenario is playing out, but many of those same lawmakers have come to the opposite conclusion - that the state should move back to a regulated market.

The about-face in the General Assembly reflects deep-seated fears about constituents being subjected to ever-increasing utility bills. Gov. Martin O'Malley, who proposed last week what he called a "rational" plan for re-regulation, has argued that deregulation didn't deliver on promises of competition that would drive down prices and solve impending supply shortages.

Marylanders are increasingly having trouble paying their utility bills. Residents are paying 85 percent more for electricity than they were before deregulation, and more than 80,000 households are so far behind that their power could be shut off by Baltimore Gas and Electric Co. starting next month.

The resulting outcry has spurred talk of re-regulation in the legislature but also ways to limit terminations when bills spike in extreme heat. Power shut-offs are limited in the winter at certain temperatures, but the same protections aren't in effect in the summer.

Backers of deregulation, particularly the business community, remain steadfast. They contend that lawmakers haven't given the system a chance to work and are now practicing knee-jerk politics.

They warn that re-regulation could destroy a thriving competitive marketplace that has allowed the largest users - commercial customers and government entities, including the state of Maryland - to buy 70 percent of their electricity from retail suppliers instead of utilities. That marketplace has barely been accessed yet by residents.

"If you eliminate choice now, you eliminate people's access to cheaper power," said Harry Warren, president of Washington Gas Energy Services. The company has been advertising with direct mail and door-knocking campaigns that it can beat BGE rates, but has had limited success in drawing customers.

Warren's company, an affiliate of Washington Gas that buys electricity on the wholesale market for resale, began offering service shortly after deregulation in Maryland. He said residents have been slow to switch because of a lack of education about alternatives. The company has more than 60,000 customers, mostly in Maryland, compared with BGE's 1.2 million customers.

Among the most strident opponents of re-regulation is Constellation Energy Group, BGE's parent company.

Paul Allen, a senior vice president, called the proposals under consideration unconstitutional, unaffordable and unworkable: "Re-regulation is more than just a slogan for dissatisfaction with today's prices - it is also a prescription for what could be radical and uncontrollable changes that could have dire unintended consequences.

But leading lawmakers from both parties are lining up behind various forms of re-regulation.

Even Senate President Thomas V. Mike Miller, a Democrat and a towering figure in Annapolis who helped get deregulation approved in 1999, said he favors a hybrid system that would impose additional regulations under which consumers would benefit.

Under O'Malley's proposal, state regulators would have the authority to regulate all future power generation in the state. They could order utilities to build new power plants, or to buy electricity, and sell it to customers at a rate set by the state. Regulators would have to decide by December whether to continue to allow customer choice. Only 3 percent of residential customers get their power from retail suppliers.

Opponents say the plan would force rate-payers to shoulder enormous costs to build new power plants, driving up rates, whereas energy companies are the ones that pay now. More than a dozen retail electricity suppliers could be put out of business, their trade group contends.

But the plan's backers point out that no power plants of substantial size have been built in Maryland since deregulation was approved, and that the construction costs for plants ordered under re-regulation would have to be spread across all customers to keep the amount each pays low.

With five weeks before the legislative session concludes, some lawmakers are worried about being able to craft a thoughtful policy that doesn't backfire on consumers.

"I'm concerned that in our zeal to undo what we did in 1999, we might be going down the same path," said Dereck E. Davis, a Prince George's County Democrat and chairman of the Economic Matters Committee, who voted for deregulation. "I don't want to rush and make another mistake."

Sen. Robert J. Garagiola, a Montgomery County Democrat, said that the General Assembly has created uncertainty in the marketplace by continually debating the issue, scaring off energy companies that would otherwise have set up shop here.

Garagiola said state regulators already have the authority to take many of the steps called for in legislation, and they have an obligation to help consumers get low-cost, reliable electric service. He also noted that new power plants, including a nuclear reactor planned by Constellation, and new transmission lines are expected to lower costs.

"The common perception is that everyone thinks deregulation has failed, but the jury is still out," he said.

One idea gaining traction would limit utility service cut-offs for delinquent bills when the heat index is above 95 degrees. Del. Keith E. Haynes, a Baltimore Democrat, sponsored the bill and is considering expanding it to help customers take care of past-due amounts.